THE DECISION DRIVEN ORGANIZATION

IN BRIEF This article is based upon Bain & Company study of 57 companies reorganizations Carried out for time interval of 2000 to 2006 It was found that fewer than one-third produced any meaningful improvement in performance. The message of the article is: When companies are looking to improve performance, particularly after the appointment of a new CEO. The temptation is to see reorganization as the answer. Without fully considering the decision making processes within the company. Such reorganizations are therefore often based on a superficial assessment of processes and people and can become turf battles rather than the basis for improvement. REORGANIZATION To change the way the organization is organized. An important function of the chief executives. Responsible for making the structural changes that will lead to better performance. Reorganizations are characterized by a change in organizational structure. The creation or elimination of departments. A reallocation of responsibilities. The reassignment or repurposing of employees. PURPOSE OF REORGANIZING Cost cutting Promoting growth Shaking culture Shifting strategic focus Better and faster decisions WHAT DRIVES PERFORMANCE Organizational structure is not the only determinant of performance. A profound misunderstanding about the link between structure and performance. Contrary to popular belief, performance is not determined solely by the Nature. Scale. Disposition of resources, important though they may be. An armys success depends at least as much on the quality of the decisions its officers and soldiers make and execute on the ground as it does on actual fighting power. A corporations structure, similarly, will produce better performance if and only if it improves the organizations ability to make and execute key decisions better and faster than competitors. It may be that the strategic priority for your company is to become more innovative. In that case, the reorganization challenge is to structure the company so that its leaders can make decisions that produce more and better innovation over time. Sometimes companys structure to meet a particular strategic goal can actually exacerbate problems rather than help solve them. For example, an organization struggling to innovate may try to gather more and more creative inputand end up getting too many people involved, thereby slowing the pace of decision making and stifling innovation. CONDUCTING DECISION AUDIT For most companies, this requires a fundamental rethinking of their approach to reorganization. Instead of beginning with an analysis of strengths, weaknesses, opportunities, and threats, structural changes need to start with what is a decision audit. The goals of the audit are to : Understand the set of decisions that are critical to the success of companys strategy. To determine the organizational level at which those decisions should be made and executed to create the most value. The company can align its organizations structure with its decisions, then the structure will work better, and companys performance will improve. OBJECTIVES Clarifying roles. Establishing more appropriate spans of control (the ratio of employees to supervisors). Moving low-performing workers out of the way. Stimulating fresh thinking. EFFECTS No change Gain from such reorganization Losses from such re organization Completely destroying the organization

STEPS TO DRIVEN REORGANIZATION Identify your organizations key decisions. Determine where in those organization those decisions should happen. Organize the macrostructure around sources of value Figure out what level of authority decisions makers need. Adjust other parts of the organization system to support decision making. Help managers develop the skills and behaviors necessary to make and execute decisions quickly and well. CHRYSLER US auto giant Chrysler restructured its organization three times in the three years preceding its bankruptcy and eventual combination with Fiat. Each time, executives proclaimed that the company was on a new path to profitability. Each time, performance didnt improve. None of those reorganizations had much effect. REORGANIZATION AT ABB A new ABB CEO, Jrgen Dormann, analyzed the decision failures and then cut through the tangled web by consolidating divisions and centralizing profit-and-loss accountability The reorganization worked It restored ABB's ability to generate fast, competitive bids Because Dormann's team knew that the purpose of the new structure was to support and smoothen the progress of those decisions and others that were equally important.

Why are decisions so central? When you think about it, an organization's performance is really no more and no less than the sum of the decisions it makes and executes.

YAHOO! Some years ago, for instance, Internet company Yahoo! reorganized itself into three groups: Audience Advertisers Publishers and Technology. But important decisions got bogged down, and Yahoo! executives wound up having to create new roles and management levels to coordinate the three units. Product development slowed, and costs increased. FORD Ford's recent reorganization under Alan Mulally. Mr. Mulally had already mapped out a simple schematic depicting the key decisions that had to be made at each stage in Ford's value chain. Along with the infrastructure required to execute them effectively. Every week, he and his team tracked their progress in making and executing these decisions. They divested non-core brands such as Aston Martin Jaguar Land Rover Volvo Reduced the number of production platforms, began consolidating both suppliers and dealers and so on. Along the way, they decided to reorganize the company, moving from a structure based on regional business units to a global matrix of functions and geographies. This new structure enabled Ford's leadership team to make some of those critical decisions better and faster: creating global car platforms, for instance, which had been painfully difficult under the old structure. Ford still faces challenges, of course, but so far, Mulally's approach has helped Ford ride out the hurricane that lashed the global auto industry and turn in a stronger performance than its US competitors.

XEROX Xerox turnaround launched in 2001 under Anne Mulcahy. Xerox moved from Global customer structure to a simpler country structure. This structure helped Xerox eliminate several layers of middle management, increase local accountability. And the company was able to save $1billion in just 2 years. BRITISH PETROLEUM The BP case study was different and shows the other side of Tony Hayward, their recently resigned CEO. When he took over the job he found highly complex structures that had built up over the years as a result of numerous acquisitions and reorganizations. He led a simplification process based on removing layers of middle management and returning decision rights to the appropriate people. This also had the benefit of reducing overheads by a third. BRITISH GAS British Gas assessed the decisions in their various segments that created the most value and created structures that allowed such decisions to be taken effectively. Bain argue that, in addition to assessing value, it is also important to distinguish between different timescales, separating the one-off major investment decisions from the day to day judgments that need quick and flexible responses. DELL REORGANIZATION Dell announces a significant company-wide reorganization Including a hiring freeze Reducing travel expenses Voluntary severance Time off without pay

REORGANIZATION AT NOKIA Nokia announces reorganization of devices and services business Nokia announced a reorganization of the company structure designed to increase competitiveness Three units in the Nokia devices and services business, including Mobile Solutions, Mobile Phones and Markets were introduced.

CONCLUSION Reorganization can communicate an executive's dissatisfaction with the status quo, demonstrate responsiveness, and shake people up It rarely sets a business on the path to profitable growth Company should not reorganize unless we has evidence that a structural deficiency is among the causes Reorganizations are among the Most time-consuming Costly Productivity-sapping Internally focused changes an organization can implement. In addition, they raise expectations. If these expectations are not met, once morale and productivity could sink lower than they were before the change.